The Australian dollar headed for a third weekly decline and New Zealand’s currency was poised to drop for a second as losses in stocks deterred investors from buying higher-yielding assets. The currencies also fell this week as reports showing the economies of China and South Korea are weakening raised concern the central banks of the two South-Pacific nations will keep cutting interest rates to spur growth. Stock markets are a gauge of investor appetite for higher-yielding assets like those of Australia and New Zealand, where interest rates are currently 4.25 percent and 5 percent respectively. “For the Aussie we’re back to a very high correlation with equity markets,” said Amy Auster, head of foreign-exchange and international economics research at Australia & New Zealand Banking Group Ltd. in Melbourne. Falling stocks will “weigh” on the Australian dollar, which may trade as low as 64.60 cents today, she said. Australia’s currency fell 2.8 percent to 65.45 U.S. cents as of 1:05 p.m. in Sydney compared with late in New York last week. The currency tumbled 4.7 percent to 58.18 yen. New Zealand’s dollar slid 3.4 percent this week to 52.81 U.S. cents, and declined 5.3 percent to 46.96 yen, its third consecutive weekly loss. The benchmark rate is 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South-Pacific nations’ assets in so-called carry trades. The risk in such trades is that currency market moves may erase profits. Annual Loss New Zealand’s dollar has fallen 8.5 percent this year on concern the nation will have difficulty financing its current- account deficit after Standard & Poor’s lowered its foreign- currency credit-rating outlook on Jan. 13. The currency may extend losses as NZ$15 billion ($7.95 billion) of New Zealand dollar bonds issued in Japan, so-called uridashi debt, will mature this year, Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney, wrote in a research note today. “The headwinds for the New Zealand dollar in 2009 in attracting sufficient capital inflow to replace the maturing issues are that much stronger” than they were in previous years, Trinh said. The extra yield offered by New Zealand’s three-year government debt over similar maturity Japanese bonds is near the narrowest since 1994, according to data compiled by Bloomberg. Traders are betting the Reserve Bank of New Zealand will cut its benchmark rate at least 1 percentage point to 4 percent when it next meets Jan. 29, with a 40 percent chance of a bigger reduction, according to a Credit Suisse index based on swaps trading. Rate Outlook The Reserve Bank of Australia will lower its benchmark at least 75 basis points, with a 62 percent chance of a one percentage point cut, a separate Credit Suisse index shows. Australian policy makers meet on Feb. 3. The RBA will lower its cash rate target by 1 percentage point to 3.25 percent, JPMorgan Chase & Co forecast in a research report today, revising an earlier call for a 50 basis- point cut. “RBA officials would rather risk overdoing the policy easing by moving early and aggressively, than leaving it too late,” Stephen Walters, Sydney-based chief economist at JPMorgan, said in the report. Australian government bonds rose for the first day in three. The yield on the benchmark 10-year note declined six basis points, or 0.06 percentage point, to 4.13 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.493, or A$4.93 per A$1,000 face amount, to 109.195. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.51 percent from 3.61 yesterday.

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